You weren't very clear about where you placed your photos. Here's an example of how you would create the folder structure:
Code:
Kindle
-Pictures
--My First Picture Book
---Picture1.jpg
---Picture2.jpg
---Picture3.jpg
Only once you do that, shall you press Alt+Z (NO SHIFT). This should flash the screen, and a "book" called "My First Picture Book" (or what you named that folder) will appear in the list.